Pakistan and Iran have finalised a deal for the construction of a much-delayed pipeline to pump Iranian natural gas to the energy-starved South Asian country, the Pakistan petroleum ministry said.
The $7.6 billion project is crucial for Pakistan to avert a growing energy crisis already causing severe electricity shortages in the country of about 170 million.
Pakistani and Iranian petroleum officials signed the agreement on Friday evening in Islamabad, the ministry said.
"The project is now ready to enter into its implementation phase," the ministry said in a statement.
Pakistan said the first gas is scheduled to flow by the end of 2014 and expects its total cost on the project to be $1.65 billion, funded through private and state capital.
Under the deal, Pakistan will import from Iran 750 million cubic feet of gas daily for 25 years. The amount could be increased to 1 billion cubic feet a day and the deal could be extended five years if needed, the ministry said.
The ministry said the imported gas would help generate about 5,000 MW of power.
The pipeline would connect Iran's South Fars gas field with Pakistan's southern Baluchistan and Sindh provinces.
Iran has the world's second-largest gas reserves after Russia. But sanctions by the West, political problems and construction delays have slowed its development as an exporter.
Dubbed the "peace pipeline" by the two countries, the project has been planned since the 1990s and originally would have extended from Pakistan to its old rival, India.
However, India has been reluctant to join the project given its long-running distrust of Pakistan, with which it has fought three wars since independence in 1947.
Under a previous deal between Iran and Pakistan, Islamabad holds the right to charge a transit fee if the pipeline is eventually extended to India.
The United States has tried to discourage India and Pakistan from any deal with Iran because of Tehran's suspected ambitions to build nuclear weapons. Iran denies any such ambitions.
India has invested in civilian nuclear reactors to help fulfil its increasing energy demand. It also signed a landmark civilian nuclear deal with the United States in 2008.
Nuclear-armed Pakistan has long called for a similar deal with the United States, but Washington has been unwilling to make an agreement with its ally, which is battling an al Qaeda-linked Islamist insurgency.